If it's not an iPhone, it's not likely a profitable phone

Apple may not have the largest market share in smartphones but it continues to eat up nearly all of the profits. Could the Android phone market see some consolidation?

While some smartphone makers chase market share, Apple is pulling away when it comes to profits: For every dollar of operating profit in the smartphone market, Apple is nabbing $0.92, leaving the others fighting for scraps.

That estimate comes from Canaccord Genuity as noted by the Wall Street Journal over the weekend.

Considering that Apple's iPhone sales globally account for roughly 20 percent of all smartphones sold, the situation for its competitors will only get worse if Apple boosts its share of the market. And it appears that Apple thinks it will: Last week it reportedly asked its production partners to build a record number of next-generation handsets by the end of 2015.

This WSJ graph based on Canaccord Genuity's estimate shows the situation; note that the total percentage of profits add up to more than 100 percent since some handset makers have lost money during the reflected time period.


The data also focuses on a mix of smartphone platforms, including BlackBerry and Windows Phone, both of which have seen their sales drop precipitously in the past several years.

Missing are other large Google Android phone makers such as HTC (which has also struggled for some time) as well as China-based companies such as Xioami, ZTE and Huawei. Xioami tends to sell its handsets at or near cost in order to boost sales.

Of all of the companies in the market, Apple is focused the most on high-profit margin handsets, although it does sell lower priced phones. These are the one- and two-year old models discounted from their original prices at a time where the older components cost less and still have healthy profit margins.

That's a markedly different approach from the rest of the handset makers, many of which offer a range of unique phones at various price points.


Given Samsung's recent profit challenges as well as falling sales and revenue at HTC (see chart above), Sony and others, I'm starting to wonder when we see a relatively major Android hardware partner simply drop out of the race.

Besides competing against Apple at the high-end, these companies are also battling with each other in a very crowded and relatively unprofitable Android market.

I wouldn't be surprised by next year if there's one -- possibly even two -- Android partners that throws in the towel.